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Andy Mako on bridging the Boomer LTCI divide

Are LTCI adoption rates finally starting to pick up? Are registered investment advisors finally starting to see its value? If not, what can be done? We asked Andy Mako, senior vice president of the long term care insurance with Prudential Financial, for his take.

Boomer Market Advisor: Are we starting to see an increase in what has traditionally been low LTCI penetration in the marketplace?

Andy Mako: Yes, sales have fallen over the last several years by significant amounts. But this year we're starting to see growth in the business. One of the things that is unique about this product relative to other products that registered investment advisors might see is that once people buy this product they don't let it lapse. It's in contrast to annuities, which are frequently turned over in the marketplace. People think of LTCI as a once and done purchase. I think over time that may change and people think of it like they do life insurance today. You can buy a little bit now or you can buy a little bit later, but today it's a once and done purchase.

BMA: Why have sales fallen off in the past few years?

AM: A couple of things have happened. One was that a few prominent carriers who had been active in long term care have dropped out of the marketplace, largely due to profitability concerns. There were some miss-estimations on things like lapse rates and morbidity rates in the early generations of the product. Those who came out early, the pioneers, really paid the price. So that made some of the distributors very skittish about whom they could trust. I think the number of distributors today is actually lower than it was than probably five years ago.

BMA: So where will the growth come from?

AM: Finding distribution in the registered investment advisors, wirehouses and financial planners that are largely untapped to this point. I think that the growth of the market will come from there.

BMA: Are carriers adding bells and whistles that resonate with clients?

AM: There are really two kinds of distributors out there. One is the LTC specialist, who is selling long term care almost exclusively. Those folks are interested in a lot of the bells and whistles that the carriers have been putting on their products. Product development, historically, has been largely driven by that group. But in order to grow the product, it needs to be expanded to other products in long term care. The people who have been historically based in the investment world have not really been tapped into at this point. I think all the bells and whistles are a little intimidating for them.

BMA: So it's the opposite -- streamlined products that are simpler to understand?

AM: Yes, I think what you are starting to see is a trend with carriers that focus on simpler, cheaper products that have fewer bells and whistles.

BMA: Has it really been more of a distribution problem then rather than a product problem then, or has it been a combination of both?

AM: I think distribution is a big part of it. I think there's also a consumer perception about the cost of the services they are trying to get covered. We've done some focus groups recently. What we find is that people vastly underestimate the cost of care down the road. So if you are going to need a nursing home or assisted living or even home care, those costs are typically $60,000 to $80,000 in today's dollars. So projecting that out in the future, it becomes a six digit number pretty quickly. But people don't think in those terms. On the other hand, most people think that the cost of the insurance is in the $6,000 to $8,000 range, when in reality the average premium is just over $2,100. So there's a mismatch in perception. Consumer awareness is going to have to change over time. The industry needs to do a better job of educating people on that front.

BMA: That's a perfect segue. What are you doing, specifically with Prudential, from an education standpoint?

AM: There are a couple of things we're doing. We're working with AHIP, which is an industry organization America's Health Insurance Plans. Most of the major carriers are working with them on material that is going to be used to create an awareness campaign in the industry. It will target both the producers and the consumers to help get some of the misinformation clarified and what some of the facts are in the industry. The other thing we do is part of all of our training with producers is we spend a lot of time talking about providing producers with information that they can share with customers in ways that makes it a little easier on some of these issues and try to separate fact from fiction.

BMA: Specifically, how do your long term care products address what we've talked about?

AM: With the current product we have, we try to provide the maximum flexibility at the time of claim. One of the things that people struggle with is they don't know. You have to make a decision today for something that is going to affect term 20 or 30 years in the future. They don't know what their needs are going to be. So, a lot of our products have more cash flexibility than other products do. At the time of claim, a person can decide how they want to receive their claim, if they want to get a cash payment so they can use it for costs they want to cover. They can get reimbursed for expenses. That's a relatively unique feature in the industry today.

BMA: At age 65 or 70, I might have needs I never thought about when purchasing the product 30 years earlier. How flexible is the product in accommodating these needs in that kind of a situation?

AM: The products have been developed to try to anticipate future things that we have not anticipated. Assisted living didn't even exist 15 years ago. Some of the early policies were nursing home only policies. Carriers have done different things. Some have stuck to the letter of the contract and are not been flexible on that. They weren't priced for that. The newer contracts that people are issuing, including ours, are providing for alternative plans of care that try to anticipate today that will someday become an issue and allows for us to pay for a coverage that we would have intended to pay for if it existed today, but we don't know what that is right now.

BMA: The name of the magazine is Boomer Market Advisor. Make the case for LTCI specifically for baby boomers as the first wave heads into retirement.

AM: I think the people who bought the product up to this point are people who we would say are the type of people that plan. These are consumers who have taken care of the wills, taken care of the estate plan, etc. Another group is people who have had some LTC experience in their family. Their mother, father, their grandparent, has gone through it. The third group of people places a high value on insurance. So they've got every type of insurance you could imagine. We think this is an area that exposes the planning type of person, quite frankly, because they can do a great job on all their investment needs but this is a potential hole in their retirement plan. On the positive side, I think it's just another element in a retirement plan. Whether it's going to be where they are going to live, how they are going to live, whether they're going to keep working, how to provide for their dependents, transfer wealth, when to draw social security; they are all part of that long-term care equation.

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